As Car Sales Rise, Financing Deals Replace Discounts

By AnnaMaria Andriotis

As consumer demand for cars continues to rise, manufacturers are forgoing their usual holiday blow-out sales.

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November car sales rose to an annualized rate of 13.6 million vehicles, adjusted for seasonality, according to Edmunds.com, the highest since August 2009. Today, Chrysler, Nissan and General Motors all reported strong U.S. sales during November. Unfortunately, experts say that increase means consumers who are looking for a year-end car deal may be out of luck.

Traditionally, car makers roll out their best deals in December — namely, thousands of dollars in cash back — on current-year car models in an attempt to push them off the lot to make way for new cars. But with sales rising and little excess inventory, expert says carmakers have little reason to offer sizeable deals. On average, car makers spent $2,253 on incentives per car sold last month, down 8.6% from a year ago, according to Edmunds.com. That’s the lowest average November spending since 2002.

In their place are a growing number of financing deals, especially car leases with monthly payments that can help drivers save thousands, says Ivan Drury, senior analyst at Edmunds.com. “The place where you save the most money now is in leasing in almost every single instance,” he says.

Consider a 2011 Acura MDX, which has a manufacturer’s suggested retail price of around $43,000. On a three-year car loan at 4.5% with nothing down, the monthly payment comes out to about $1,280. But in many areas (deals vary by location) on a three-year lease, a shopper can lock in a $550 monthly payment. Over three years, that comes out to a whopping $26,300 saved.

Those lower payments are largely a result of the used car market, which is still booming as demand for used vehicles remains high, says Alec Gutierrez, manager of vehicle valuation at Kelley Blue Book. The result is that when cars are returned following a lease, their value is higher.

But for many, leases are rarely a deal. Consumer advocates have advised shoppers for years to refrain from leases and for good reason: They come loaded with fees and often require significant money down. In addition, insurance costs for the driver are higher than when he actually buys a car.

For buyers who prefer to own, some manufacturers are offering cheap financing through their captive arms, which consumers can sign up for when they’re in the dealership. Honda for example is offering rates as low as 0.9% on both 2011 and 2012 models. Lexus deals start as low as 0.9% and 1.9%. And in many cases, cheap financing can actually help car buyers to save more than they would if they accepted a $500 cash discount offer, which is among the most common cash back offers available now.

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